Many of us are looking for places to invest or at least preserve extra money for retirement. Conventional retirement accounts such as IRAs and 401(k)s aren’t your only retirement savings options. Here are four savings vehicles that offer something unique to the retirement saver.
1. High-interest rewards checking accounts. In today’s economy, would you accept a 3 percent interest rate on deposited funds that are 100 percent liquid and FDIC insured? These accounts exist and are easy to find if you are willing to do a little work online. Two good places to start are checkingfinder.com and depositaccounts.com. There are some limitations to these accounts, including maximum balances and a minimum number of debit card transactions each month.
2. Health savings accounts. If you are healthy, your HSA can be one of the best retirement investments around. A fully-funded HSA is even more tax favored than a Roth IRA because the dollars going in and going out are not taxed. Try not to spend your HSA funds until you retire, and then use the funds and accumulated investment earnings to pay for current medical expenses including Medicare premiums and to reimburse yourself for past expenses. It’s all tax-free.
3. I-Bonds. I-Series government savings bonds pay interest based on a combination of fixed and inflation-indexed components. Currently, the fixed interest-rate component is 0 percent, but the inflation-indexed interest rate is 4.6 percent. The other excellent feature of I-Bonds for retirement investors is that the interest earned is tax-deferred until you redeem the bonds. I-Bonds can be easily purchased online from the government’s Treasury Direct site. There are annual purchase limits of $10,000 per Social Security number, including $5,000 in electronic bonds plus $5,000 in paper bonds.
4. Single premium deferred annuities. A single premium deferred annuity (SPDA) is a special type of annuity that is purchased with a single lump-sum payment by the owner. However, the annuity benefits are not paid immediately, as with the more widely known single premium immediate annuity. Instead, the annuity value grows on a tax-deferred basis until the contribution and growth amount is annuitized. There are fixed and variable SPDAs, but in either case, the earnings and distributions are only taxed when you receive them. Also, there are no legal limits on how much you can invest in a SPDA. As with any annuity, be very careful about fees and the fine print. Consider building a ladder of smaller annuities that commence in different years in order to spread the risk around with different companies and to perhaps earn a better overall return as market conditions change.
Mark Patterson is an engineer, patent attorney, baby boomer, and author of The Failsafe Retirement System. He blogs on matters of personal finance and retirement planning at Tough Money Love and Go To Retirement.